Ratajczak et al v. Beazley Solutions Limited et al

Filing 120

ORDER signed by Chief Judge William Griesbach dated July 7, 2014, granting 87 Motion to Dismiss Third Amended Complaint and Plaintiffs claims against Mesirow are also dismissed without prejudice--but Plaintiffs related request for costs, expenses, and attorneys fees pursuant to 28 U.S.C. § 1927 is denied as moot; granting 98 Beazleys Motion for Reconsideration or to drop R-T Specialty as a party in order to preserve the Courts subject matter jurisdiction and R-T Specialty is dismissed w ithout prejudice pursuant to Fed. R. Civ. P. 21; granting 100 parties joint motion to bifurcate and Discovery relating to Plaintiffs bad faith claims, as embodied in Counts V and VI of the Third Amended Complaint, is stayed pending resolution of Pl aintiffs other claims. Discovery otherwise permissible in connection with Plaintiffs coverage claims will not be precluded simply because that discovery might also be relevant to, or might lead to the discovery of evidence relevant to, Plaintiffs ba d faith claims. All currently scheduled deadlines are hereby suspended, and the parties shall present a proposed revised pretrial schedule within ten (10) days of entry of this order. SEE ORDER FOR FULL DETAIL. (cc: all counsel) (Griesbach, William)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN

DANIEL J. RATAJCZAK, JR.,
ANGELA RATAJCZAK,
SCOTT A. RATAJCZAK, and
ELIZABETH RATAJCZAK,
Plaintiffs,
v.

Case No. 13-C-045

BEAZLEY SOLUTIONS LIMITED,
R-T SPECIALTY, LLC, and
MESIROW INSURANCE SERVICES, INC.
Defendants.

ORDER GRANTING MOTION TO DISMISS

Plaintiffs Daniel, Angela, Scott, and Elizabeth Ratajczak filed this diversity action for
declaratory relief against Beazley Solutions Limited when it failed to defend and indemnify them
for liability arising out of the sale of their interests in a company called Packerland Whey Products,
Inc. Plaintiffs were insured under a Seller’s Warranty and Indemnity Policy which they purchased
from Beazley with the assistance of R-T Specialty, LLC and Mesirow Insurance Services, Inc. After
discovering that Beazley was not authorized to sell insurance in Wisconsin, Plaintiffs added R-T
Specialty and Mesirow as defendants alleging they were liable under a state statute that makes liable
those who assist in the procurement of an illegal policy if the unauthorized insurer fails to pay a
covered claim. Wis. Stat. § 618.44. The Third Amended Complaint currently before the court
contains seven counts: (I) declaratory judgment on Policy coverage; (II) breach of contract (breach
of the Policy); (III) illusory coverage – reformation of the Policy; (IV) declaration of illegal policy

under Wis. Ch. 618; (V) bad faith investigation, association, and/or consent to settlement; (VI) bad
faith denial of coverage; and (VII) violation of Wis. Stat. § 628.46. (ECF No. 82.) Counts I–IV are
asserted against Beazley as well as R-T Specialty, LLC, and Mesirow Insurance Services, Inc., the
two intermediary insurers that allegedly assisted in procuring the Policy. Counts V–VII are asserted
only against Beazley.
The Court will now address three pending motions: (1) Beazley’s motion for reconsideration
or to drop R-T Specialty as a party in order to preserve the Court’s subject matter jurisdiction (ECF
No. 98); (2) Mesirow’s motion to dismiss Plaintiffs’ Third Amended Complaint (ECF No. 87); and
(3) all parties’ joint motion to bifurcate (ECF No. 100).
1. Beazley’s Jurisdictional Motion
On May 14, 2014, after the Third Amended Complaint was filed, the Court issued an order
to show cause directing defendants R-T Specialty and Mesirow to provide a statement of
jurisdiction. (ECF No. 94.) R-T Specialty indicated that one of its members is a citizen of
Wisconsin, which is the same state of citizenship as all four plaintiffs. (ECF No. 96.) For purposes
of 28 U.S.C. § 1332, this revelation destroys diversity of citizenship and deprives the Court of
subject matter jurisdiction. See Belleville Catering Co. v. Champaign Marketplace, LLC, 350 F.3d
691, 692 (7th Cir. 2003) (holding that LLCs or limited liability companies “are citizens of every
state of which any member is a citizen”).
On May 27, 2014, Beazley filed a motion seeking to keep the case in federal court. (ECF
No. 98.) Beazley proposed that the Court should either reconsider its orders granting the plaintiffs
leave to file their Second and Third Amended Complaints (which joined R-T Specialty to the
lawsuit) or exercise its powers under Fed. R. Civ. P. 21 to dismiss R-T Specialty as a party. Under
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Fed. R. Civ. P. 21, the Court may “at any time, on just terms, add or drop a party.” A district court
may maintain subject matter jurisdiction by dismissing a “dispensable” non-diverse defendant either
before or after final judgment. Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826, 832 (1989).
To determine whether dismissal is appropriate, the Court must consider whether R-T Specialty is
“indispensable” under Fed. R. Civ. P. 19, which sets forth a two-part test. The Court must
determine:
(1) if in the [party’s] absence, complete relief cannot be accorded among those who
are already parties; or (2) if the [party] claims an interest relating to the subject of
the action and is so situated that disposition of the action in its absence may (i)
impair or impede its ability to protect that interest, or (ii) leave any of the persons
already joined subject to a substantial risk of incurring multiple or otherwise
inconsistent obligations.
North Shore Gas Co. v. Salomon Inc., 152 F.3d 642, 647 (7th Cir. 1998) (citing Fed. R. Civ. P. 19).
Here, if Plaintiffs are successful in the action, Plaintiffs will be able to obtain full relief from
Beazley. Indeed, as explained below, liability on the part of R-T Specialty and Mesirow does not
even arise until and unless Beazley fails to pay a claim payable under the policy. Neither Mesirow
nor R-T Specialty are parties to the Policy. Their liability, if any, arises under Section 618.44 of the
Wisconsin Statutes. Under that section, an insurance contract with a foreign insurer not authorized
to sell insurance in Wisconsin is “unenforceable by, but enforceable against, the insurer.” Wis. Stat.
618.44. In other words, Plaintiffs may lawfully enforce the contract against Beazley, as they seek
to do in this lawsuit. Only if Beazley does not pay a covered claim can R-T Specialty and/or
Mesirow be liable. Id. Although Beazley denies that Plaintiffs’ claims are covered under the policy,
there is no reason to believe that it will not pay the claims if coverage is found. Beazley is actively
defending the case and has filed a declaration establishing that Beazley is an underwriter for Lloyds

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Corporation, London. The declaration establishes that Beazley has access to more than sufficient
funds to pay any judgment that might be entered in the action. (ECF No. 24.)
Under these circumstances, it is clear that R-T Specialty is not an indispensable party to this
lawsuit. Given that a substantial amount of litigation has already been conducted here, the Court
will exercise its powers under Fed. R. Civ. P. 21 and dismiss R-T Specialty as a party without
prejudice. Dismissal under Fed. R. Civ. P. 21 obviates the need to reconsider any previous orders.
2. Mesirow’s Motion to Dismiss
On March 4, 2004, Mesirow filed a motion to dismiss Plaintiffs’ Third Amended Complaint,
or alternately, to stay all claims against the insurance intermediary defendants until Beazley’s
liability for coverage under the Policy is determined. In considering a motion to dismiss, the Court
construes the allegations in the complaint in the light most favorable to the plaintiff, accepts all
well-pleaded facts as true, and draws all inferences in favor of the non-moving party. Estate of
Davis v. Wells Fargo Bank, 633 F.3d 529, 533 (7th Cir. 2011). The court may consider “the
complaint itself, documents attached to the complaint, documents that are critical to the complaint
and referred to in it, and information that is subject to proper judicial notice.” Geinosky v. City of
Chi., 675 F.3d 743, 745 n.1 (7th Cir. 2012). To state a claim, a complaint must contain sufficient
factual matter, accepted as true, “that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial
plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.” Id. (citing Twombly, 550 U.S. at
556). The complaint allegations “must be enough to raise a right to relief above the speculative
level.” Twombly, 550 U.S. at 555 (citation omitted).
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Plaintiffs do not contest that Mesirow is entitled to dismissal from Counts I, II, and III, all
of which are predicated on their contract with Beazley. As already noted, Mesirow is not a party
to that contract. Count IV is the only count that focuses on Mesirow’s conduct. In Count IV,
Plaintiffs allege that the Policy was illegally procured because Beazley and the intermediary insurers
failed to properly notify Plaintiffs that Beazley was an unauthorized insurer in Wisconsin, as
required by Wis. Stat. § 618.41(4) and Wis. Admin. Code Ins § 6.17(3)(a). Plaintiffs’ claim against
Mesirow, like their claim against R-T Specialty, rests on Section 618.44 of the Wisconsin Statutes.
That Section states in its entirety:
618.44 Effect of illegal contracts. An insurance contract entered into in violation
of this chapter is unenforceable by, but enforceable against, the insurer. The terms
of the contract are governed by chs. 600 to 646 and 655 and rules promulgated
thereunder. If the insurer does not pay a claim or loss payable under the contract,
any person who assisted in the procurement of the contract is liable to the insured
for the full amount of the claim or loss, if the person knew or should have known the
contract was illegal.
(italics added). Plaintiffs contend that the statute creates joint and several liability among the
defendants, and thus Mesirow’s liability under the Policy is independent of and equal to that of
Beazley. Mesirow, on the other hand, contends that its liability, if any, is not joint and several with
Beazley, but is contingent upon Beazley not paying a claim or loss covered by the policy. Mesirow
has the better argument based on the plain language of the statute.1

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Plaintiffs contend that the Court has already ruled that Section 618.44 creates joint and
several liability in its oral decision denying their motion for a default judgment against Mesirow.
(ECF No. 80.) It did not. The court noted that in cases in which a defaulting defendant’s liability
on a claim was joint and several with non-defaulting defendants, judgment against the defaulting
defendant should be withheld. See 10AWright, Miller & Cooper, FEDERAL PRACTICE AND
PROCEDURE : JURISDICTION § 2690 (3d ed. 1998). The same rule is applicable here since the liability
alleged is for the same debt.
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By its plain terms, Section 618.44 imposes liability for a claim payable under an illegal
insurance contract on the person who procured it only if the insurer does not pay it. Thus,
Mesirow’s liability under Section 618.44 is contingent upon Beazley refusing or otherwise failing
to pay a covered claim. As noted above, there is no reason to believe that contingency will occur
here. Beazley is vigorously defending the claim and has established both its ability and willingness
to pay any judgment obtained by the Plaintiffs. Absent a plausible allegation that Beazely might
not pay a judgment entered against it, Plaintiffs have failed to state a claim against Mesirow. Their
complaint does not contain “a short and plain statement of the claim showing that the pleader is
entitled to relief.” Fed. R. Civ. P. 8(a)(2) (italics added). Instead, they have shown that Mesirow
could be liable if certain contingent events occur in the future. That is not enough.2
Before a plaintiff can haul a party into court on a claim and compel him or her to respond
the claim must be ripe. A dispute is not ripe when it has not yet matured to a point that warrants
judicial determination. 13B FEDERAL PRACTICE

AND

PROCEDURE § 3532, at 365. “Ripeness

concerns may arise when a case involves uncertain or contingent events that may not occur as
anticipated, or not occur at all.” Wisconsin Right to Life State Political Action Comm. v. Barland,
664 F.3d 139, 148 (7th Cir. 2011) (citing 13B FEDERAL PRACTICE AND PROCEDURE § 3532, at 365
(3d ed. 2008)). In determining wether a claim is ripe for adjudication, courts look to two factors:

2

In this respect, Rule 8(a) differs from Rule 13(g) governing crossclaims among defendants.
Wright, Miller and Cooper contrast Rule 13(g) with Rule 13(a), which governs counterclaims and,
like Rule 8(a), requires a showing that the pleader is entitled to relief. The authors note that “unlike
Rule 13(a), the crossclaim provision does not require that the claim be mature at the time of
pleading.” 6 FEDERAL PRACTICE AND PROCEDURE § 1431, at 281. Instead, they note, Rule 13(g)
“specifically provides that a crossclaim can be brought if the party against whom it is asserted “is
or may be liable to the crossclaimant for all or any part” of the plaintiff’s claim.” Id. This makes
sense since cross-claimants are in the case in any event.
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“‘the fitness of the issues for judicial decision’ and ‘the hardship to the parties of withholding court
consideration.’ ” Id. (quoting Pac. Gas & Elec. Co. v. State Energy Res. Conservation & Dev.
Comm'n, 461 U.S. 190, 201 (1983)). Neither factor supports consideration of Plaintiffs’ claim
against Mesirow at this time.
“Claims that present purely legal issues are normally fit for judicial decision.” Wisconsin
Right to Life, 664 F.3d at 148 (citing Abbott Labs. v. Gardner, 387 U.S. 136, 149 (1967)). It is
unclear whether the coverage dispute between Plaintiffs and Beazley is primarily legal or rests upon
disputed facts. Regardless, however, dismissing their claim against Mesirow will not prevent
Plaintiffs from resolving their underlying claim against Beazley. In fact, with fewer parties, the
claim can likely be resolved more quickly. If Plaintiffs prevail and Beazley fails to pay its
judgment, Plaintiffs’ claim against Mesirow will be ripe and easily reduceable to judgment. Thus,
Plaintiffs will suffer no hardship if their claim is dismissed. Mesirow, on the other hand will be
forced to incur the time and costs of litigating a dispute that there is no reason to believe will arise.
“Defendants . . . should not be forced to bear the burdens of litigation without substantial
justification, and in any event may find themselves unable to litigate intelligently if they are forced
to grapple with hypothetical possibilities rather than immediate facts.” 13B FEDERAL PRACTICE
AND

PROCEDURE § 3532.1, at 373-74.
Plaintiffs’ argument that they have stated a valid claim against Mesirow is based on a

misreading of Section 618.44 and cases that discuss joint and several liability in tort. See, e.g.,
Salton, Inc. v. Philips Domestic Appliances & Pers. Care B.V., 391 F.3d 871 (7th Cir. 2004). But
it is clear from the language of the statute that the liability of the persons who knowingly procure
an illegal contract is not joint and several, but contingent upon the insurer failing to pay a covered
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claim or loss. Plaintiffs also rely on older cases applying the predecessor statute to Section 618.44
directly to procurers. See Case v. Meany, 165 Wis. 143, 161 N.W. 363 (1917), and Cordy v.
Northern Sec. Co., 177 Wis. 68, 187 N.W. 663 (1922). In neither case, however, was the issue of
whether a proper claim had been stated was even raised. The same is true of the more recent
decision of the District Court of Appeal of Florida that applied a similar statute to an insurance
broker who obtained a trade credit policy in violation of that State’s Unauthorized Insurer Act. Aon
Risk Services, Inc. v. Quintec, S.A., 887 So.2d 368 (Fla. Dist. Ct. App. 2004). These cases stand for
the unremarkable proposition that an insured may under certain circumstances sue the procurer of
an illegal insurance contract directly instead of the insurer. The issue raised here, however, is
whether the insured can do so when the insurer is vigorously defending the claim and stands ready,
willing and able to pay any judgment entered against it. For the reasons set forth above, I conclude
it cannot.
3. Joint Motion to Bifurcate
On May 28, 2014, Beazley, Mesirow, and R-T Specialty filed a joint motion to stay
discovery of Plaintiffs’ bad faith claims, to bifurcate trial between issues of coverage (Counts I–IV
& VII) and bad faith (Counts V & VI), to extend the existing deadline for fact discovery between
Plaintiffs and Beazley by 30 days, and to suspend all other existing deadlines, including, but not
limited to, all deadlines for fact discovery involving parties other than Beazley. (ECF No. 100.)
Under Fed. R. Civ. P. 42(b), the Court may bifurcate issues or claims “[f]or convenience, to avoid
prejudice, or to expedite and economize.” Bifurcation is appropriate when it: (1) avoids prejudice
to a party or serves the interests of judicial economy; (2) does not unfairly prejudice the non-moving

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party; and (3) does not violate the Seventh Amendment. See Houseman v. U.S. Aviation
Underwriters, 171 F.3d 1117, 1121 (7th Cir. 1999).
This Court previously held in a claim involving insurance coverage and bad faith claims that
bifurcation was appropriate. See Winter v. Liberty Mut. Fire Ins. Co., No. 06-C-800, 2006 WL
2711804 (E.D. Wis. Sept. 21, 2006). The Court observed in Winter that under Wisconsin law, a
coverage claim under an insurance policy is separate and distinct from a claim of bad faith, and a
plaintiff must first demonstrate that the insurer breached its obligations under the policy before it
may prove a bad faith claim.

Id. at *1 (citing Dahmen v. American Family Ins. Co.,

635 N.W.2d 1, 6 (Wis. Ct. App. 2001)). The Court concluded that bifurcation was appropriate
because the coverage and bad faith claims were sufficiently distinct and bifurcation would
potentially prevent wasted discovery on the bad faith claim. Id. at *2. The same reasoning applies
here, and the Court will grant the joint motion.
CONCLUSION
IT IS HEREBY ORDERED that Beazley’s motion for reconsideration or to drop R-T
Specialty as a party in order to preserve the Court’s subject matter jurisdiction (ECF No. 98) is
granted, and R-T Specialty is dismissed without prejudice pursuant to Fed. R. Civ. P. 21.
IT IS FURTHER ORDERED that Mesirow’s motion to dismiss Plaintiffs’ Third Amended
Complaint (ECF No. 87) is granted, and Plaintiffs’ claims against Mesirow are also dismissed
without prejudice. Plaintiffs’ related request for costs, expenses, and attorney’s fees pursuant to 28
U.S.C. § 1927 is denied as moot.
IT IS ALSO ORDERED that the parties’ joint motion to bifurcate (ECF No. 100) is
granted. Discovery relating to Plaintiffs’ bad faith claims, as embodied in Counts V and VI of the
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Third Amended Complaint, is stayed pending resolution of Plaintiffs’ other claims. Discovery
otherwise permissible in connection with Plaintiffs’ coverage claims will not be precluded simply
because that discovery might also be relevant to, or might lead to the discovery of evidence relevant
to, Plaintiffs’ bad faith claims.
IT IS ALSO ORDERED that trial of Plaintiffs’ coverage claims is bifurcated from trial of
Plaintiffs’ bad faith claims. Evidence otherwise admissible at trial of Plaintiffs’ coverage claims
will not be excluded simply because it might also bear on issues of bad faith as well.
IT IS ALSO ORDERED that all currently scheduled deadlines are hereby suspended, and
the parties shall present a proposed revised pretrial schedule within ten (10) days of entry of this
order.
Dated at Green Bay, Wisconsin, this

7th

day of July, 2014.

s/ William C. Griesbach
William C. Griesbach, Chief Judge
United States District Court

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